Fortinet® (NASDAQ: FTNT), a global leader in high performance cyber security solutions, today announced financial results for the third quarter ended September 30, 2015.

"For the third consecutive quarter this year, Fortinet accelerated billings growth to record levels, delivering 41% billings growth -- the highest ever as a public company," said Ken Xie, founder, chairman and chief executive officer. "Additionally, we delivered non-GAAP operating margin and earnings per share upside to shareholders. We are executing well and our investment strategy is working. Fortinet remains well-positioned to gain market share globally due to our strong competitive technology position and best-in-class end-to-end network security solutions portfolio, as well as the ongoing success of our land and expand strategy."

Financial Highlights for the Third Quarter of 2015

Billings1: Total billings were $299.6 million for the third quarter of 2015, an increase of 41% compared to $213.2 million in the same quarter of 2014.

Revenue: Total revenue was $260.1 million for the third quarter of 2015, an increase of 35% compared to $193.3 million in the same quarter of 2014. Within total revenue, product revenue was $119.7 million, an increase of 36% compared to $87.7 million in the same quarter of 2014. Service revenue was $140.3 million, an increase of 33% compared to $105.6 million in the same quarter of 2014.

Deferred Revenue: Total deferred revenue was $706.9 million as of September 30, 2015, an increase of $49.4 million compared to $657.6 million as of June 30, 2015.

Cash and Cash Flow2: As of September 30, 2015, cash, cash equivalents and investments were $1.17 billion, compared to $1.15 billion as of June 30, 2015. In the third quarter of 2015, cash flow from operations was $65.1 million compared to $56.5 million in the same quarter of 2014. Free cash flow1 was $51.7 million during the third quarter of 2015 compared to $50.7 million in the same quarter of 2014.

GAAP Operating Income or Loss:GAAP operating loss was $1.8 million for the third quarter of 2015, representing a GAAP operating margin of -0.7%. GAAP operating income was $15.5 million for the same quarter of 2014, representing a GAAP operating margin of 8%.

GAAP Net Income and Diluted Net Income Per Share: GAAP net income was $8.2 million for the third quarter of 2015, compared to GAAP net income of $4.1 million for the same quarter of 2014. GAAP diluted net income per share was $0.05 for the third quarter of 2015, compared to $0.02 for the same quarter of 2014.

Non-GAAPOperating Income1:Non-GAAP operating income was $36.4 million for the third quarter of 2015, representing a non-GAAP operating margin of 14%. Non-GAAP operating income was $30.4 million for the same quarter of 2014, representing a non-GAAP operating margin of 16%.

Non-GAAPNet Income and Diluted Net Income Per Share1: Non-GAAP net income was $24.1 million for the third quarter of 2015, compared to non-GAAP net income of $20.0 million for the same quarter of 2014. Non-GAAP diluted net income per share was $0.14 for the third quarter of 2015, compared to $0.12 for the same quarter of 2014.

1 A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading "Non-GAAP Financial Measures."

2 During the third quarter of 2015, there were no shares repurchased under our share repurchase program.

Conference Call Details

Fortinet will host a conference call today, October 22, 2015, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss its financial results. To access this call, dial (877) 303-6913 (domestic) or (224) 357-2188 (international) with conference ID # 55728223. A live webcast of the conference call and supplemental slides will be accessible from the Investor Relations page of Fortinet's website at http://investor.fortinet.com and a replay will be archived and accessible at http://investor.fortinet.com/events.cfm. A replay of this conference call can also be accessed through October 29, 2015, by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID# 55728223.

Following the financial results conference call, Fortinet will host an additional question-and-answer session at 3:30 p.m. Pacific Time (6:30 p.m. Eastern Time) to provide an opportunity for financial analysts and investors to ask more detailed product and financial questions. To access this call, dial (877) 303-6913 (domestic) or (224) 357-2188 (international) with conference ID # 55732708. This follow-up call will be webcast live and accessible at http://investor.fortinet.com, and a replay will be archived and available after the call at http://investor.fortinet.com/events.cfm. A replay of this conference call will also be available through October 29, 2015 by dialing (855) 859-2056 (domestic) or (404) 537-3406 (international) with conference ID # 55732708.

Fortinet(NASDAQ: FTNT) protects the most valuable assets of some of the largest enterprise, service provider and government organizations across the globe. The company's fast, secure and global cyber security solutions provide broad, high-performance protection against dynamic security threats while simplifying the IT infrastructure. They are strengthened by the industry's highest level of threat research, intelligence and analytics. Unlike pure-play network security providers, Fortinet can solve organizations' most important security challenges, whether in networked, application or mobile environments - be it virtualized/cloud or physical. More than 200,000 customers worldwide, including some of the largest and most complex organizations,
trust Fortinet to protect their brands. Learn more at www.fortinet.com, the Fortinet Blog or FortiGuard Labs.

This press release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements regarding the momentum in our business, potential growth of our business and market share gains. Although we attempt to be accurate in making forward-looking statements, it is possible that future circumstances might differ from the assumptions on which such statements are based. Important factors that could cause results to differ materially from the statements herein include the following: general economic risks; increasing competitiveness in the security market; the dynamic nature of the security market; specific economic risks in different geographies, and among different customer segments; changes in foreign currency exchange rates; uncertainty regarding increased business and renewals from existing customers; uncertainties around
continued success in sales growth and market share gains; failure to convert sales pipeline into final sales; risks associated with successful implementation of multiple integrated software products and other product functionality risks; execution risks around new product development and introductions and innovation; sales execution risks; product defects; security breaches; litigation and disputes and the potential cost, distraction and damage to sales and reputation caused thereby; market acceptance of new products and services; the ability to attract and retain personnel; changes in strategy; risks associated with management of growth; lengthy sales and implementation cycles, particularly in larger organizations; risks associated with business acquisitions, including integration risks and assumption of unknown liabilities; technological changes that make our products and services less
competitive; competition and pricing pressure; risks associated with increased international sales, including the impact of foreign currency exchange rates; and the other risk factors set forth from time to time in our most recent Annual Report on Form 10-K, our most recent Quarterly Report on Form 10-Q and our other filings with the SEC, copies of which are available free of charge at the SEC's website at www.sec.gov or upon request from our investor relations department. All forward-looking statements herein reflect our opinions only as of the date of this release, and we undertake no obligation, and expressly disclaim any obligation, to update forward-looking statements herein in light of new information or future events.

Non-GAAP Financial Measures

We have provided in this release financial information that has not been prepared in accordance with Generally Accepted Accounting Principles (GAAP). These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies. We use these non-GAAP financial measures internally in analyzing our financial results and believe they are useful to investors, as a supplement to GAAP measures, in evaluating our ongoing operational performance. We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial results with other companies in our industry, many of which present similar non-GAAP financial measures to investors.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures below. As previously mentioned, a reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included below in this press release.

Billings. We define billings as revenue recognized plus the change in deferred revenue from the beginning to the end of the period less any deferred revenue balances acquired from business combination(s) during the period, if any. We consider billings to be a useful metric for management and investors because billings drive deferred revenue, which is an important indicator of the health and viability of our business. There are a number of limitations related to the use of billings versus revenue calculated in accordance with GAAP. First, billings include amounts that have not yet been recognized as revenue. Second, we may calculate billings in a manner that is different from peer companies that report similar financial measures. Management compensates for these limitations by providing specific information regarding GAAP revenue and evaluating billings together with
revenue calculated in accordance with GAAP.

Free cash flow. We define free cash flow as net cash provided by operating activities minus capital expenditures. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after the acquisition of property and equipment, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, repurchasing outstanding common stock, and strengthening the balance sheet. Analysis of free cash flow facilitates management's comparisons of our operating results to competitors' operating results. A limitation of using free cash flow versus the GAAP measure of net cash provided by operating activities as a means for evaluating liquidity is that free cash flow does not represent the total increase or decrease in the cash, cash
equivalents and investments balance for the period because free cash flow excludes cash used for capital expenditures and also excludes cash provided by or used for other investing and financing activities. Management compensates for this limitation by providing information about our capital expenditures and other investing and financing activities on the face of the cash flow statement and under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" in our most recent Quarterly Report on Form 10-Q and Annual Report on Form 10-K.

Non-GAAP operating income and operating margin. We define non-GAAP operating income as operating income or loss plus stock-based compensation, business acquisition-related charges, including inventory fair value adjustment amortization and other purchase accounting adjustments, impairment and amortization of intangible assets, restructuring charges, expenses associated with the implementation of a new Enterprise Resource Planning (ERP) system, and, when applicable, any other significant non-recurring items in a given quarter. Non-GAAP operating margin is defined as non-GAAP operating income divided by revenue. We consider these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of stock-based compensation expense, business acquisition-related charges,
including inventory fair value adjustment amortization and other purchase accounting adjustments, impairment and amortization of intangible assets, restructuring charges, expenses associated with the implementation of a new ERP system, and, when applicable, any other significant non-recurring items so that our management and investors can compare our recurring core business operating results over multiple periods. There are a number of limitations related to the use of non-GAAP operating income versus operating income or loss calculated in accordance with GAAP. First, non-GAAP operating income excludes stock-based compensation expense, business acquisition-related charges, including inventory fair value adjustment amortization and other purchase accounting adjustments, impairment and amortization of intangible assets, expenses associated with the implementation of a new ERP system, and
any other significant non-recurring items. Stock-based compensation has been and will continue to be, for the foreseeable future, a significant recurring expense in our business. Second, stock-based compensation expense is an important part of our employees' compensation and impacts their performance. Third, the components of the costs that we exclude from our calculation of non-GAAP operating income may differ from the components that other companies exclude when they report their non-GAAP results of operations. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP operating income and evaluating non-GAAP operating income together with operating income or loss calculated in accordance with GAAP.

Non-GAAP net income and diluted net income per share. We define non-GAAP net income as net income plus items noted above under non-GAAP operating income and operating margin, adjusted for the impact of the tax adjustment, if any required, resulting in an effective tax rate on a non-GAAP basis, which could differ from the GAAP effective tax rate. We define non-GAAP diluted net income per share as non-GAAP net income divided by the weighted-average diluted shares outstanding. We consider these non-GAAP financial measures to be useful metrics for management and investors for the same reasons that we use non-GAAP operating income and non-GAAP operating margin. However, in order to provide a complete picture of our recurring core business operating results, we include in non-GAAP net income and non-GAAP diluted net income per share, the tax adjustment required resulting in an
effective tax rate on a non-GAAP basis, which could differ from the GAAP tax rate. We believe the effective tax rates we used are reasonable estimates of normalized tax rates for our current and prior fiscal years under our global operating structure. The same limitations described above regarding our use of non-GAAP operating income and non-GAAP operating margin apply to our use of non-GAAP net income and non-GAAP diluted net income per share. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP net income and non-GAAP diluted net income per share and evaluating non-GAAP net income and non-GAAP diluted net income per share together with net income and diluted net income per share calculated in accordance with GAAP.

FORTINET, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)

September 30, 2015

December 31, 2014

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

540,712

$

283,254

Short-term investments

367,446

436,766

Accounts receivable-net

174,111

184,741

Inventory

80,246

69,477

Deferred tax assets

47,304

41,484

Prepaid expenses and other current assets

41,921

31,143

Total current assets

1,251,740

1,046,865

LONG-TERM INVESTMENTS

261,506

271,724

PROPERTY AND EQUIPMENT-net

83,372

58,919

DEFERRED TAX ASSETS

72,003

31,080

GOODWILL

4,260

2,824

OTHER INTANGIBLE ASSETS-net

18,967

2,832

OTHER ASSETS

15,325

10,530

TOTAL ASSETS

$

1,707,173

$

1,424,774

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

$

48,793

$

49,947

Accrued liabilities

29,831

29,016

Accrued payroll and compensation

47,915

45,875

Income taxes payable

5,477

2,689

Deferred revenue

471,118

368,929

Total current liabilities

603,134

496,456

DEFERRED REVENUE

235,793

189,828

INCOME TAXES PAYABLE

56,906

45,139

OTHER LIABILITIES

15,954

17,385

Total liabilities

911,787

748,808

STOCKHOLDERS' EQUITY:

Common stock

172

166

Additional paid-in capital

671,138

562,504

Accumulated other comprehensive loss

(90

)

(349

)

Retained earnings

124,166

113,645

Total stockholders' equity

795,386

675,966

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

1,707,173

$

1,424,774

FORTINET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share amounts)

Three Months Ended

Nine Months Ended

September 30, 2015

September 30, 2014

September 30, 2015

September 30, 2014

REVENUE:

Product

$

119,737

$

87,731

$

332,023

$

249,880

Service

140,331

105,617

380,716

296,515

Total revenue

260,068

193,348

712,739

546,395

COST OF REVENUE:

Product1

46,167

35,636

134,932

105,230

Service1

25,534

21,249

69,869

60,155

Total cost of revenue

71,701

56,885

204,801

165,385

GROSS PROFIT:

Product

73,570

52,095

197,091

144,650

Service

114,797

84,368

310,847

236,360

Total gross profit

188,367

136,463

507,938

381,010

OPERATING EXPENSES:

Research and development1

42,110

30,790

115,315

89,783

Sales and marketing1

120,994

80,433

333,531

222,576

General and administrative1

21,220

9,789

51,199

29,243

Restructuring charges

5,883

-

5,883

-

Total operating expenses

190,207

121,012

505,928

341,602

OPERATING INCOME (LOSS)

(1,840

)

15,451

2,010

39,408

INTEREST INCOME

1,333

1,339

4,119

3,991

OTHER EXPENSE-net

(653

)

(1,005

)

(2,160

)

(1,968

)

INCOME (LOSS) BEFORE INCOME TAXES

(1,160

15,785

3,969

41,431

PROVISION FOR (BENEFIT FROM) INCOME TAXES

(9,329

)

11,729

(6,552

)

22,901

NET INCOME

$

8,169

4,056

10,521

18,530

Net income per share:

Basic

$

0.05

$

0.02

$

0.06

$

0.11

Diluted

$

0.05

$

0.02

$

0.06

$

0.11

Weighted-average shares outstanding:

Basic

171,648

164,294

169,898

163,289

Diluted

177,897

169,727

175,963

168,735

1Includes stock-based compensation as follows:

Cost of product revenue

$

291

$

60

$

641

$

351

Cost of service revenue

1,849

1,522

5,141

4,214

Research and development

6,663

4,505

17,361

12,558

Sales and marketing

13,904

7,397

34,482

18,890

General and administrative

3,612

1,183

9,376

6,300

$

26,319

$

14,667

$

67,001

$

42,313

FORTINET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in thousands)

Three Months Ended

Nine Months Ended

September 30, 2015

September 30, 2014

September 30, 2015

September 30, 2014

Net income

$

8,169

$

4,056

$

10,521

$

18,530

Other comprehensive income (loss) -- net of taxes:

Foreign currency translation losses

-

(432

)

-

(333

)

Unrealized gains (losses) on investments

337

(977

)

400

(993

)

Tax provision (benefit) related to items of other comprehensive income or loss

(118

)

342

(141

)

348

Other comprehensive income (loss) -- net of taxes

219

(1,067

259

(978

)

Comprehensive income

$

8,388

$

2,989

$

10,780

$

17,552

FORTINET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

Nine Months Ended

September 30, 2015

September 30, 2014

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

10,521

$

18,530

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

22,206

16,519

Amortization of investment premiums

5,770

6,680

Stock-based compensation

67,001

42,313

Excess tax benefit from stock-based compensation

-

(4,325

)

Other non-cash items -- net

2,681

3,801

Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions:

Accounts receivable -- net

20,923

13,140

Inventory

(12,023

)

(11,095

)

Deferred tax assets

(28,297

)

(12,186

)

Prepaid expenses and other current assets

(8,210

(2,781

)

Other assets

(264

)

(159

)

Accounts payable

(9,842

)

3,806

Accrued liabilities

(3,296

)

2,818

Accrued payroll and compensation

(1,895

)

5,651

Other liabilities

(1,232

)

14,350

Deferred revenue

136,193

68,006

Income taxes payable

13,753

(3,850

)

Net cash provided by operating activities

213,989

161,218

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of investments

(329,687

(388,808

Sales of investments

35,384

27,282

Maturities of investments

364,256

371,837

Purchases of property and equipment

(29,013

(26,802

Payments made in connection with business acquisitions, net of cash acquired

(38,025

(17

)

Net cash provided by (used in) investing activities

2,915

(16,508

)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock

63,543

40,529

Taxes paid related to net share settlement of equity awards

(22,989

)

(8,506

)

Excess tax benefit from stock-based compensation

-

4,325

Repurchase and retirement of common stock

-

(38,235

)

Net cash provided by (used in) financing activities

40,554

(1,887

)

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS

-

(600

)

NET INCREASE IN CASH AND CASH EQUIVALENTS

257,458

142,223

CASH AND CASH EQUIVALENTS -- Beginning of period

283,254

115,873

CASH AND CASH EQUIVALENTS -- End of period

$

540,712

$

258,096

Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures

Reconciliation of non-GAAP results of operations to the nearest comparable GAAP measures

(Unaudited, in thousands, except per share amounts)

Reconciliation of GAAP operating income or loss to Non-GAAP operating income, operating margin, net income and diluted net income per share

Three Months Ended September 30, 2015

Three Months Ended September 30, 2014

GAAP Results

Adjustments

Non-GAAP Results

GAAP Results

Adjustments

Non-GAAP Results

Operating income (loss)

$(1,840

)

38,230

(a)

$36,390

$15,451

$14,911

(b)

$30,362

Operating margin

-0.7

%

14

%

8

%

16

%

Adjustments:

Stock-based compensation

26,319

14,667

Amortization of intangible assets

1,319

244

ERP-related expenses

2,473

-

Business acquisition-related charges

934

-

Inventory fair value adjustment amortization

1,302

-

Restructuring charges

5,883

-

Tax adjustment

(22,304

)

(c)

985

(c)

Net income

$8,169

$15,926

$24,095

$4,056

$15,896

$19,952

Diluted net income per share

$0.05

$0.14

$0.02

$0.12

Shares used in diluted net income per share calculations

177,897

177,897

169,727

169,727

(a) To exclude $26.3 million of stock-based compensation, $1.3 million of amortization of intangible assets, $2.5 million of ERP-related expenses, $0.9 million of business acquisition-related charges, $1.3 million of inventory fair value adjustment amortization recorded pursuant to our business acquisition, and $5.9 million of restructuring charges in the three months ended September 30, 2015.

(b) To exclude $14.7 million of stock-based compensation and $0.2 million of amortization of intangible assets in the three months ended September 30, 2014.